If you’re a foreign investor in a tax haven (or “offshore financial center”), you’re likely to pay a low tax rate, if not nothing at all. Businesses and other investors may avoid paying taxes in high-tax nations by transferring their cash into or via tax havens.
Although it may be needed in tax-free jurisdictions, a resident or company presence is not usually necessary to take advantage of tax haven rules. Furthermore, tax havens do not exchange financial information about their investors with international tax authorities.
Tax havens may apply fees, levies, or even a modest tax on investments from outside the country to generate money for the government. Economic development in the tax haven nation is facilitated by this influx of cash, which is large even with low-to-zero tax rates.
World’s Top 10 Tax Havens, According to the Tax Justice Network, 2021
- British Virgin Islands — 2,853
- Cayman Islands — 2,653
- Bermuda — 2,508
- Netherlands — 2,454
- Switzerland — 2,261
- Luxembourg — 1,814
- Hong Kong — 1,805
- Jersey — 1,724
- Singapore — 1,714
- United Arab Emirates — 1,664
Tax havens face legal challenges.
Many of the actions linked with tax havens are lawful, while many others are not. Even storing money earned outside of one’s nation in a tax haven to avoid greater taxes in one’s own country may be done legally.
So, too, is using a tax haven to hide money invested in a trust or corporation. The use of tax havens, on the other hand, is not permitted for hiding profits or laundering money obtained via illicit methods, such as tax evasion.
According to regulatory agencies such as the Organization for Economic Cooperation and Development (OECD) and the U.S. Government Accountability Office, contemporary tax havens often comply with the definition of a tax haven that ranges from one source to the next.
Businesses based in one country but generate income in another might benefit from lower tax rates thanks to the OECD-compliant practices of modern corporate havens and bilateral tax treaties signed between the two nations.
With base erosion and profit shifting, several tax havens have the legal power to enable tax treaties near to nil in many cases (BEPS).
The most well-known tax havens in the world
British Virgin Islands
This British Colony’s economy contains more than 5,000 times its GDP in foreign assets, making it widely regarded as the world’s biggest tax haven. Despite local authorities’ claims that the territory is not a tax haven, the BVI is home to more than 400,000 enterprises with a combined market value of $1.5 trillion (U.S. dollars).
Luxembourg, one of the world’s wealthiest nations, is also one of the world’s most popular tax havens. Approximately 30% of the Fortune 500 businesses in the United States have subsidiaries in Luxembourg, according to research by Citizens for Tax Justice and U.S.
PIRG Education Fund Online retailer Amazon.com, for example, routes all of its European sales via its official Luxembourg headquarters.
The Cayman Islands owned one-fifth of $30 trillion in banking assets. Besides having no corporation tax, Cayman Islands inhabitants are not subject to property, income, or payroll taxes.
Hedge fund managers like the Cayman Islands because of the zero percent corporate and individual income tax rate, which applies to all investment income, including interest and dividends. Fortune 500 firms, including Pepsi, Marriott, & Wells Fargo, have subsidiaries in the Cayman Islands.
It’s a well-known tourist destination, but it’s also a favorite tax haven for high-rollers in the finance industry. Due to Bermuda’s absence of taxes on corporate profits, interest, dividends, and royalties, the island’s GDP per capita is exceptionally high.
Companies like Google and Nike have avoided paying taxes in the United States because of the low tax rates in Bermuda.
According to former finance minister Jan Kees de Jager, compared to Switzerland or the Cayman Islands, the Netherlands’ financial systems are less exploitable.
While many Fortune 500 corporations are funneling income via Dutch subsidiaries to decrease their taxes, Google, Fiat Chrysler, IBM, and the like may have a different opinion.
Banks in Switzerland are recognized across the globe for their confidentiality, which protects their customers’ financial information. This trustworthiness makes it simple and efficient for both people and organizations to conceal their riches.
Switzerland’s tax rates are also quite beneficial, notwithstanding removing several of the country’s privacy rules.
Also See: Tax-Free Countries 2022
There is a unique tax situation in the U.S. since each state determines its own individual income tax rates. However, it is not as favorable as the other nations on our list.
Tax havens are commonly found in states that do not levy an income tax, such as the following: Alaska; Florida, Nevada; South Dakota; Tennessee; Texas, Washington, and Wyoming.
|Country||Investopedia 2022||TJN CTHI 2021||Go Banking 2021||ThinkAdvisor 2021||Corpnet "sink" 2017||Mapped FSI 2020|
|British Virgin Islands||X||2853||X||9.0200||5235|
|United Arab Emirates||X||1664||8.6700|
|Isle of Man||850||X||7.5800|
|Turks and Caicos Islands||290|